Professional Documents
Culture Documents
IN
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
APPELLANTS
VERSUS
GOTAN LIME STONE KHANJI UDYOG PVT. LTD.
& ANR.
...RESPONDENTS
J U D G M E N T
1.
Leave granted.
quashing
of
its
order
dated
16th
December,
2014
whereby
it
declared its earlier order dated 25th April, 2012 as void and
cancelled the mining lease No.45 of 1993.
Question
for
consideration
is
whether
looking
at
the
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into
company
and
transfer
of
lease
rights
to
such
company,
FACTS
M/s.
Gotan
Limestone
Khanji
Udhyog
(GLKU),
The said
herein,
M/s.
Gotan
Limestone
Khanji
Udhyog
Pvt.
Ltd.
2012 states that the lessee was a partnership firm and wished to
transfer the lease to a private limited company which was mere
change of form of its own business by converting itself from a
partnership firm into a private limited company.
The partners
of the firm and Directors of the company were the same and on
transfer, no illegal benefit, price or premium was taken from
the transferee.
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mining
lease
itself
sold
its
entire
shareholding
to
another
On this development, a
was
issued
to
Respondent
No.1
proposing
to
cancel
the
application
partnership
firm
for
transfer
will
be
that
the
Directors
of
partners
the
of
private
the
limited
of
August,
2012
the
and
firm
the
were
replaced
private
by
limited
new
on
6 th
listed
as
Directors
company
was
Stock
Exchange.
This
development
showed
that
the
In its
There
authority.
Accordingly,
the
order
dated
25th
April,
2012
was
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rescinded and declared void vide order dated 16th December, 2014.
It was also observed that the department had filed its revised
reply before the High Court and according to the said reply, the
transfer was in violation of Rule 15 of the Rajasthan Minor
Mineral Concession Rules, 1986 (the Rules).
7.
lease
unlawful
gain
to
UTCL
was
which
was
acquired
in
not
permissible
connivance
with
and
the
thereby
mining
The erstwhile
Thus,
the
owned
writ
petitioner-Respondent
No.1
became
wholly
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subsidiary of UTCL.
of
part
transfer
of
the
mining
lease
and
its
After the
It was
submitted that the order dated 16th December, 2014 had not dealt
with the objection regarding applicability of Rule 72 (treating
the
lease
void)
and
the
directorship
of
the
judgments
relied
upon
by
the
writ
was
of
no
consequence
for
The writ petition was defended by the State with the plea
valid.
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10.
and
was
aggrieved
by
rejection
of
its
application
moved
an
2015.
The
party
supported
the
order
of
newly formed company was indirect way to transfer the lease for
consideration by GLKU to UTCL which was not legally permissible.
11.
The
main
issue
framed
by
learned
Single
Judge
for
Department3,
Amit
Products
(India)
Ltd.
vs.
Chief
Engineer (O&M) Circle4 and Balwant Raj Saluja & Anr. vs. Air
1
2
3
4
AIR 1955 SC 74
(1969) 1 SCC 765
(1999) 4 SCC 458
(2005) 7 SCC 393
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India
Limited
&
Ors.
learned
Single
Judge
concluded
as
follows:
In view of the law laid down by the Honble
Supreme Court in the case of Government Companies,
inter-se
relationship
between
holding
and
subsidiary Companies and fundamental principles
regarding distinction between a shareholder and
the Company, it is apparent that merely on account
of the Company becoming a subsidiary of Ultra Tech
Cement Limited on account of certain action of the
shareholders of the Company, it cannot be said
that the Company is being directly or indirectly
financed to a substantial extent or the Companys
operations
or
undertakings
are
substantially
controlled by Ultra Tech Cement Limited, regarding
which there are absolutely no allegations or
material whatsoever. Therefore, on account of the
petitioner-Company becoming subsidiary of Ultra
Tech Cement Limited, in view of the law laid down
by
the
Honble
Supreme
Court
as
noticed
hereinbefore, it cannot be said that ipso facto
the provisions of Rule 15(1) (b) of the Rules have
been violated by the lessee i.e. petitionerCompany.
13.
appellant and the impleaded party JKCL filed appeals before the
Division Bench of the High Court which have been dismissed by
impugned order dated 14th May, 2015.
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could
not
be
transferred
without
the
However, a
consent
of
the
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competent authority.
It was
later learnt that the partners retired and new partners were
inducted and on that basis the transfer was declared void.
16.
consideration
of
Rs.160
crores.
This
consideration
is
in
shares
of
GLKUPL.
It
has
also
referred
to
application
for
transfer
of
lease
was
made
by
GLKU.
executed on 8th August, 2013 but on 23rd July, 2012 itself entire
shareholding was transferred to UTCL for Rs.160 crores.
Thus,
of transfer.
17.
18.
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transfer
of
shareholding
took
place
just
after
the
transaction
to
the
competent
authority.
The
Court
was
The judgments
shareholding
merger
but
use
or
of
change
device
of
to
Directors
or
unauthorisedly
even
acquire
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If true
High
Court
noticing it.
been
to
not
appreciate
the
judgment
even
after
transferred
brought
did
the
for
consideration
knowledge
of
the
without
competent
this
fact
authority
being
having
and
the
well
known
exceptions
to
this
abstract
doctrine.
6
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20.
Learned
counsel
for
the
respondent-writ
petitioner
He submitted that
Transaction
rent/royalty
and
compliance
of
procedural
formalities.
He
We
have
given
thoughtful
consideration
to
the
issue
same
partners
as
directors
without
there
being
any
third
transfer
party.
by
itself.
There
In
is
perhaps
the
second
nothing
wrong
transaction,
in
the
such
entire
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shareholding
is
transferred
for
share
price
and
control
of
The partnership
is
granted.
not
allowed
and
for
which
no
permission
has
been
authority,
permission
for
transfer
of
mining
rights
for
Mining rights
belong to the State and not to the lessee and the lessee has no
right to profiteer by trading such rights.
has also not claimed such a right.
has
achieved
indirectly
what
could
not
be
achieved
Is
distinct
corporate
personality
of
company
or
its
where
protection
of
public
interest
is
of
paramount
(1967) 1 SCR 934 The Commissioner of Income Tax, Madras vs. Sri Meenakshi Mills Ltd.
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the
public
interest,
the
effect
on
parties
who
may
be
affected etc.9
24.
In
State
of
U.P.
vs.
Renusagar
Power
Co.10
this
Court
observed:
66. It is high time to reiterate that in the
expanding horizon of modern jurisprudence, lifting
of corporate veil is permissible. Its frontiers
are unlimited. It must, however, depend primarily
on the realities of the situation. The aim of the
legislation is to do justice to all the parties.
The horizon of the doctrine of lifting of
corporate veil is expanding
67. In the aforesaid view of the matter we are of
the opinion that the corporate veil should be
lifted and Hindalco and Renusagar be treated as
one concern and Renusagars power plant must be
treated as the own source of generation of
Hindalco and should be liable to duty on that
basis. In the premises the consumption of such
energy by Hindalco will fall under Section 3(1)(c)
of the Act. The learned Additional AdvocateGeneral for the State relied on several decisions,
some of which have been noted.
68. The veil on corporate personality even though
not lifted sometimes, is becoming more and more
transparent in modern company jurisprudence. The
ghost of Salomon case (1897 AC 22) still visits
8
(1985) 4 SCC 114 Workmen Employed in Associated Rubber Industry Ltd., Bhavnagar vs.
Associated Rubber Industry Ltd., Bhavnagar
9 (1986) 1 SCC 264 (LIC vs. Escorts Ltd.) which refers to
Palmers Company Law (23rd Ed.) and Pennington Company Law (4th Ed.) followed in New
Horizons Ltd. vs. UOI (1995) 1 SCC 478
10 (1988) 4 SCC 59
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25.
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will
regard
the
corporation
as
an
association of persons. The same can be
seen in various European jurisdictions".
[(1990) 53 MLR 338]. Indeed, as far back 1912,
another American Professor L. Maurice Wormser
examined the American decisions on the subject in
a brilliantly written article "Piercing the veil
of corporate entity" (published in (1912) 12 CLR
496) and summarised their central holding in the
following words :
The various classes of cases where the
concept of corporate entity should be
ignored and and veil drawn aside have
now been briefly reviewed. What general
rule, if any, can be laid down ? The
nearest approximation to generalization
which
the
present
state
of
the
authorities would warrant is this: When
the conception of corporate entity is
employed to defraud creditors, to evade
an existing obligation, to circumvent a
statute,
to
achieve
or
perpetuate
monopoly, or to protect knavery or
crime, the courts will draw aside the
web of entity, will regard the corporate
company as an association of live, upand-doing, men and women shareholders,
and
will
do
justice
between
real
persons.
25. In Palmer's Company Law, this topic is
discussed in Part-II of Vol-I. Several situations
where the court will disregard the corporate veil
are set out. It would be sufficient for our
purposes to quote the eighth exception. It runs :
"The
courts
have
further
shown
themselves willing to 'lifting the veil'
where the device of incorporation is
used
for
some
illegal
or
improper
purpose.... Where a vendor of land
sought to avoid the action for specific
performance by transferring the land in
breach of contract to a company he had
formed
for
the
purpose,
the
court
treated the company as a mere 'sham' and
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26.
of
violation
corporate entity.
of
law
by
using
the
device
of
to
third
party
for
consideration
without
statutory
of
entire
shareholding
to
law
which
which
is
is
not
real
lease
The
permitted.
give
mining
company.
is
to
of
another
transaction
applied
sale
to
sought
legally
to
be
circumvented.
27.
In Victorian Granites (supra), it was observed:4. It is true that a facade of compliance of law
has been done by P. Rama Rao and Magam Inc. for
having the transfer of the leasehold interests had
by P. Rama Rao made in favour of the latter. The
best of the legal brains will be available to
escape the clutches of law and transactions would
be so shown to be in compliance of semblance of
law. In that pursuit, payment of royalty and
permits remained in the name of P. Rama Rao. The
court has to pierce through the process, lift the
veil and reach the genesis and effect. Article
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the State and the lessee is strictly bound by the terms of the
lease12.
case)
and
Vodafone
International
Holdings
B.V.
versus
In fact,
(supra) that
the court can look to the real transaction goes against the
12 (2013) 6 SCC 476 (Orissa Mining Corpn. Ltd. vs. Ministry of Environment and Forest) Para
58; (1981) 2 SCC 205 (State of Tamil Nadu vs. M/s Hind Stone) Para 37; (2012) 11 SCC 1
( Monnet Ispat & Energy Ltd. vs. Union of India) Para 41; (1976) 4 SCC 108 (Amritlal
Nathubhai Shah vs. Union Govt. of India); (2013) 7 SCC 571 (Geomin Minerals & Marketing
Ltd. vs. State of Orissa)
13 (2013) 7 SCC 1
14 (2002) 2 SCC 333
15 (2012) 6 SCC 613
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respondent .
29.
In
Vedanta
(supra)16
case
approval
granted
by
the
interest.
private
company,
as
being
contrary
to
public
decision in BALCO case (supra) laying down that Courts may not
ordinarily
interfere
with
economic
decisions
and
wisdom
of
review.
These
judgments
are
in
the
context
of
of
Vodafone.
share
capital
Question
of
was
company
whether
called
income
CGP
accrued
by
in
HEL
to
India.
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Negativing
the
claim
of
the
Revenue,
it
was
held
that
and
not
concluding,
to
the
adopt
court
approach. 18
dissecting
reconciled
the
apparent
In
so
conflicting
Thus, while
lease
framework.
receipt
of
can
There
Rs.160
be
is
operated
nothing
crores
strictly
to
styled
within
rebut
as
the
the
statutory
allegation
investment
in
that
shares
is
Para 64
(1985) 3 SCC 230
(2004) 10 SCC 1
1936 AC 1
1982 AC 300
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knowledge
that
in
the
wake
of
It is a matter of
reports
submitted
by
2015,
it
has
been
provided
that
transfer
of
mineral
that the lessee has a vested right to transfer the lease subject
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merely
to
correct.
compliance
of
formalities
cannot
be
accepted
as
As
with
the
doctrine
of
public
trust.
The
rules
consent
of
competent
authority
in
writing23.
The
23 R.15. Transfer of Mining Lease.- (1) The lessee shall not without the previous consent in
writing of the competent authority(a) assign, sublet, mortgage or in any other manner transfer the mining lease or any
right, title or interest therein, or
(b) enter into or make any arrangement, contract or understanding whereby the lessee
will or may be directly or indirectly financed to a substantial extent by, or under which the
lessee's operations or undertakings will or may be substantially controlled by any person or
body of person other than lessee.
Provided that the lessee of masonary stone may, with the prior permission of concerned
ME/AME and subject to such conditions as he may specify therein, allow any Government
contractor to install and operate stone gitti crusher till the completion of construction work.
Provided further that such permission shall be given by ME/AME after obtaining
registered consent of the lessee and also on the condition that the crusher owner shall use
masonary stone produced from the concerned lease area only.
Provided also that wherever required, permission of Revenue and other Departments
may also be taken before issuing such permission. (1A) Every application for transfer of Mining
Lease shall be accompanied by a fee of [Rs.5000/- for Marble, Sand Stone & granite and Rs.
2000/- for other minerals] and shall be submitted to the Mining Engineer / Assistant Mining
Engineer. (1AA) The Government may subject to the condition specified in rule 11(2) transfer
whole area of the lease to a person on payment to the Government transfer premium [equal to
existing dead rent;]
grant.
Provided that the lease has remained in force for at least two years from the date of
Provided further that such transfer shall not be made if there are any dues outstanding
against the transferor or transferee.
Provided further also that where the mortgagee is a State Institution or a bank or a
State corporation, it shall not be necessary for the lessee to obtain the previous consent of the
competent authority or previous sanction of the State Government. However, the lessee shall
inform the competent authority about any mortgage in favour of any State institution, Bank or
State Corporation within a period of 3 months from the date of mortgage or assignment.
(2) An application for transfer of mining lease 17 shall be disposed of by competent
authority:[xxx]
Provided that transfer of mining lease, granted to the category of persons mentioned in
sub-rule (3) of rule 7 shall be made only to a person belonging to any of the categories
mentioned in the clause of the said sub-rule.
(3) Transfer of mining lease shall not be considered as a matter of right and the
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void.
Court
has
held
that
the
State
cannot
overlook
illegal
transfers24.
34.
Government may refuse for such transfer for the reasons to be recorded and communicated
in writing to the lessee.
(4) Where on an application for transfer of mining lease under this rule the competent
authority has given consent for such lease, a transfer lease deed in Form No.15 or a form as
near thereto as possible, shall be executed within three months of the date of the consent,
or within such period as the competent authority may allow in this behalf.
R.72. Mining operations to be under lease or licence.- No mining lease, quarry license,
shortterm-permit or any other permit shall be granted otherwise than in accordance with the
provisions of these rules and if granted shall be deemed to be null and void.
24 (2014) 6 SCC 590 (Goa Foundation vs. Union of India) Para 60
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policy
However,
should
even
in
be
operated
absence
of
in
policy
transparent
and
manner.
irrespective
of
State and the State has to exercise its power to deal with them
as per doctrine of public trust.
it
is
held
that
transfer
of
lease
is
not
permissible
The original
lessee did not disclose that the real purpose was not merely to
change its partnership business into a private limited company
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only one aspect of law, i.e. the general principle that sale of
shares by itself is not sale of assets but this principle is
subject to the doctrine of piercing of corporate veil wherever
necessary to give effect to the policy of law.
In the present
without
the
previous
consent
of
competent
In
view of the above, the view taken by the High Court cannot be
sustained.
37.
Rajasthan to frame and notify its policy in the matter wit hin
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The State
may be maintained.
...J.
[ANIL R. DAVE]
....J.
[ ADARSH KUMAR GOEL ]
NEW DELHI
JANUARY 20, 2016
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